US packaging giants warn of Q4 earnings dip on falling demand

By Rory Harrington

- Last updated on GMT

Related tags: North america

photo: forwardsti
photo: forwardsti
Leading US packaging players Sonoco and MeadWestvaco have both cautioned that earnings for the end of 2011 are likely to fall short of expectations on weakening demand from Europe and North America.

South Carolina-based Sonoco said that falling demand from both sides of the Atlantic for its tube and core/paper operations in the final weeks of last year would hit both fourth quarter and full year figures. The firm added that a higher-than-anticipated tax rate on its returns would also have a negative effect.

Sonoco said the shortfall occurred primarily in the last six weeks of the fourth quarter as demand fell away in its North American and European Tube and Core/Paper operations.

“On a same-day basis, year-over-year tube and core volume for the quarter declined 7% in North America and in Europe,”​ said a company statement.

Cost savings – more to come

It detailed some cutbacks made and cautioned that more would follow as it adapted to changing business conditions”.

It said its immediate response to lower orders was to cut output – more than trebling downtime in its paperboard mill system in the three month period to 178 machine operating days compared to just 54 in Q4 2010. Some 60% of the downtime occurred in December.

The company’s also confirmed its consumer packaging segment saw “slightly lower than expected volume”​ in the last three months of 2011.

Earnings forecast cut, net sales up

Sonoco forecast that Q4 base earnings per share would drop by around 25% compared to previous predictions, while the same full returns for the full year would likely fall by between 5-6%. It emphasised that these estimate were preliminary and subject to change.

But it added that despite the problems in Q4, nets sales for the full year would achieve another record, likely to jump by 9%, with base earnings flagged as the third highest in the company’s history.

The firm predicted that its November 2011 acquisition of Tegrant Corporation – a producer of protective, temperature- assured and retail security packaging – would create new growth.

MeadWestvaco - weaker demand, especially in Europe

Similar demand trends were highlighted by MeadWestvaco which said: “Weaker than expected demand in certain US and European packaging markets resulted in lower volumes and production rates during the fourth quarter.”

The Virginia-based company said it expected Q4 pre-tax income to reach US$150-$160m, with full year forecasts now between $835m-845m.

Company chairman and CEO John A. Luke said the full year results 2011 would see “record profits and profitability”.

But he added: “In the fourth quarter, however, we saw more aggressive inventory management than we had anticipated by some customers in response to on-going macroeconomic developments, particularly in Europe.”

The company has recently outlined strong growth targets over the next five years, particularly in emerging markets.

Addressing this, Luke said: “We have great momentum with our profitable growth strategies and these near-term results in no way impact the confidence we have in our ability to deliver on the performance goals we’ve outlined for the next three to five years.”

Related topics: Processing & Packaging

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